Last Thursday I attended a symposium on the application of Job Order contracting (JOC) in Washington State. I have been compiling and reviewing Job Order Contracting cost estimates (proposals) for over 20 years and I actually had a bit of an awakening at this symposium. This week the blog topic is on “Negotiating” unit price line items taken from national estimating guides on competitively bid contracts that are publically funded and subject to audits. What? Huh! You read it right. Sound exciting…..it is!
JOC & National Estimating Cost Data: I will now admit it and say it out loud, “I have hated JOC estimating.” JOC estimating is detailed, tedious, time consuming and furthermore, no line item ever fits anything you ever do in construction. There, I said it and I feel better for it. Show me any line item in the commonly used (for JOC) national estimating cost data file and I will promise you can find several reasons why the line item does NOT fit the task in your project. The requirements of the JOC contract require that each item of scope in the project being priced must have a corresponding line item from the contract national estimating guide. Fit the job or don’t fit; a unit price line item is to be applied (remember we are dealing with public funds). For this cost estimator this was always uncomfortable. At times it was like contorting a “square” line item into a “round” cost proposal. With the line item selection at times general or not tied to a local specification; and/or at times listed as a minimum or maximum, there was always much debate (also known as negotiation) about the line items chosen and which were more appropriate. On some jobs the debate would wade into the deeper waters of productivity and crew make-up. With the national cost data estimating file you were never quite certain if the site specific blue widget connector with coarse threads (there really isn’t one of these, I made it up) was even represented in the contract database. For this estimator, JOC estimating like this was frustrating and I would at times find an excuse to avoid the next project estimate.
JOC & Negotiation: I spent the day last week listening to both contractors and owners discuss the basics of Job Order Contracting in Washington State. I was minding my own business (having a second chocolate cookie) when I overheard some of the discussion about the line items in the national estimating guide and some of the same “negotiating” of line items that I have vented about. In my thinking there should be NO NEGOTIATING in Job Order Contracting. In a pure JOC environment, with a right database, line items should fit the tasks in the project with more precise specificity. The light bulb went on; this is exactly why I have disliked the estimating end of Job Order Contracting, both as an owner’s representative and as a contractor. All the years that I have had to make line items fit site specific scope from a national estimating manual have taken their toll. JOC is also supposed to be about partnering and when the debate on line items (also known as negotiating) gets heated it harms the relationships. Don’t get me wrong, I have used national estimating guides for years and they are great! I know them well. But there is a difference between budgetary estimating with an estimating guide where you have all the freedom in the world to adjust line items to fit your project, and a contractually firm JOC where you are only allowed the verbatim line item with no adjustments to the specifics of your job.
JOC in Optimum Practice: Harry Mellon (the founder of JOC) once wrote “Contractors often prefer using an estimating guide for JOC because it restores their traditional power of being able to negotiate price……In optimum practice true Job Order Contracting does not include any negotiation of price; hence the agency maintains control of the entire process.” Amen!! For this JOC estimator the light is on. In optimum practice the pricing structure used in the contract is directly related to the success of the contract. JOC works well when it is set up well. Poor quality (more general and national) task prices equate to more negotiation and higher construction costs. It has been proven that highly detailed, comprehensive and local task prices that have associated specifications that specifically tie them down, along with adjustments for varying customer requirements, leave no room for negotiation. In optimum practice on a true Job Order Contract there should be no negotiating!
Some Background in JOC: If any of you are not familiar with Job Order Contracting and want to learn more, follow the link below for a great article that was published recently in Owner’s Perspective magazine on JOC: http://www.ownersperspective.org/project-delivery/item/84-project-timeline-comparison-joc-vs-traditional-design-bid-build .
